Why Fund Managers Are Cranking Up the Risk

Managers have turned sharply more bullish, a Bank of America poll found — and they’re putting their money behind those views.

Luis Antonio Rojas/Bloomberg

Luis Antonio Rojas/Bloomberg

As 2019 draws to a close, fund managers are suddenly feeling much more optimistic about how global markets will perform next year, according to research from Bank of America.

A net 29 percent of investors expect global growth to improve over the next year, according to BofA Global Research’s monthly fund manager survey. This marks a 22 percentage point increase from October, the biggest two-month change ever recorded by BofA. It is also a sharp upswing from June, when a net 50 percent of polled managers expected global growth to weaken over the next 12 months.

These newly bullish views are reflected in fund managers’ portfolios, with overweight allocations to global equities jumping 10 percentage points from November. A net 31 percent of respondents said they were overweight equities, while a net 48 percent of respondents said they were underweight bonds.

In addition, while a majority – 65 percent – of surveyed fund managers still think the global economy will continue to experience below-trend growth and inflation, one-in-five predicted above-trend growth and below-trend inflation over the next 12 months. BofA polled 247 managers with a combined $745 billion in assets under management for the survey.

In another “dramatic turnaround,” according to BofA, recession concerns fell by 33 percentage points, with a net 68 percent of surveyed managers saying that a recession in 2020 is unlikely. BofA said this was the sharpest two-month drop in recession expectations that the firm had recorded since May 2009.


[II Deep Dive: A Third of Fund Managers Predict Recession in the Next Year]

Although cash allocations held steady month-over-month, the net 18 percent respondents who were overweight cash is the lowest portion since November 2015, according to BofA. Other portfolio changes includes a 7-percentage-point decrease in real estate allocations — now overweight by a net 3 percent respondents — and a 5-percentage-point increase in commodities to net 6 percent overweight.

The surveyed fund managers continued to view the ongoing trade war as the biggest tail risk facing markets, but their level of concern surrounding trade tensions fell compared with a month ago. Instead, surveyed managers were increasingly concerned about the outcome of the 2020 election and the possibility of a bond bubble bursting, two tail risks that were not cited in November.